Using a personal loan for business purposes

[Grooster]

Hi,

I just wanted to know whether I am able to use a personal loan to fund a business account.
Basically I am in the process of purchasing stock and the telephone number of a rival company in the area and need to find £8/10K. My business has been established 30 years this year.
I currently bank with the co-op bank and have done for the last 30 years but they only offer loans of over £25K and won’t offer me an overdraft because it doesn’t follow their criteria.

I could get a personal loan from about 3% and I can get it quickly, whereas the cheapest business loan I have found is 9.9% and you have to go through hoops, go to branch and then wait for a week or so.
If it is possible, how would I get the payments to come out of the business account, do the loan companies actually look at account names or would I have to get the payments from my personal account and then somehow pay my personal account from the business account.

I just dont know how it will work and if it is at all possible, ethical or legal.

Any advice would be gratefully received.
Thanks

Nick

 

[dal]

Hi Ted, most definitely you can do it, exactly for the reason you wish to. It's called a Director's Loan I believe & a professional will give better input than I'm giving you here.

Thanks to Nicola (MyAccountantOnline) I have just learned it's best to have the invoice made out to yourself personally & make payment to yourself for the loan; otherwise there could be a benefit in kind to worry about.

 

[Grooster]

Thanks for your reply. I don’t know if it makes a difference and I should have maybe said this originally but I am a sole trader and not a limited company so I’m not sure if a directors loan would apply!! Not sure without checking.

 

[dal]

Ah I see, my general amateur opinion would be that's a different matter as a sole trader is viewed as you personally. So I doubt you could lend money to yourself.

I wonder what the benefit is of the business loan; I can't see there being much of a reduction in liability as most loans will want personal guarantees.

 

[Grooster]

That’s what I thought. They would personally credit score me and the business so I don’t see any advantage in taking out a business loan other than it being the correct thing to do and the monthly payment coming straight from the business.

 

[dal]

We share the exact same thought. I would transfer that money to the business account if you prefer & make the payment from there. It'll all be accounted for in you SA anyway I guess.
Someone far better will put some input in soon but it's looking promising as we share the same perspective.

 

[dotcomdude]

I just wanted to know whether I am able to use a personal loan to fund a business account.

I just dont know how it will work and if it is at all possible, ethical or legal.

As you are a sole trader, you are the business and vice-versa. Just get the loan at the cheapest rate you can (providing you’re happy to take on the debt)

 

[Mark T Jones]

If you say on your application the loan is for business purposes, you will be declined, so you will need to be somewhat fraudulent

The key word you have used us ‘from’. If you aren’t A1 credit the rate will be some distance from 3%

If you’ve been trading <2 years, start up loans is probably your best option

 

[Gordon - Commercial Finance]

If you say on your application the loan is for business purposes, you will be declined, so you will need to be somewhat fraudulent

The key word you have used us ‘from’. If you aren’t A1 credit the rate will be some distance from 3%

If you’ve been trading <2 years, start up loans is probably your best option

This is a bit like deja vu...but not quite...

 

[Grooster]

Hi,

Thanks for the replies. Very helpful. I’ll chance my hand at this. I know my credit score is excellent having had a 2.8% loan in the last year and paid it off with Tesco.

 

[Gordon - Commercial Finance]

I’ll chance my hand at this

The penalty for obtaining funds fraudulently in this way is often jail. Just bear that in mind before you "chance your hand".

 

[dotcomdude]

The penalty for obtaining funds fraudulently in this way is often jail. Just bear that in mind before you "chance your hand".

Can you provide any information to substantiate this? In the whole of my career in the Police and CID I can't recall a case even slightly resembling these circumstances.

 

[Newchodge]

Fraudulently declaring income or employment in order to get a loan may result in a slap on the wrist if discovered. Using the wrong word to describe the purpose of the loan, will not result in a second's interest from anyone.

 

[AllUpHere]

I'd chance it. I think a lot of us on here have probably done similar to get our businesses off the ground. I maxed out credit cards by taking out cash to pay staff in the early days of one on my businesses. Sometimes when you are self employed you have to be a little creative financially.

 

[NickGrogan]

The penalty for obtaining funds fraudulently in this way is often jail. Just bear that in mind before you "chance your hand".

I hope noone ever looks at mortgages then.

We're going to need a lot more jails if everyone who lied about their income / expenses / bonuses / etc is going to jail.

 

[Mark T Jones]

I hope noone ever looks at mortgages then.

l.

I think you'll find mortgage providers these days are pretty hot on this stuff - and there definitely have been cases of prison sentences handed out for fraudulent applications.

The reality is that if a loan is being serviced then nothing will happen.

If the loan goes to default, the outcome will depend on both the economic climate and the attitude of the lender - many will shrug it off, some will take a stance of pursuing legal action on general principle. In a harder climate, the latter stance will increase.

That said, if I'm absolutely honest I'd probably take a punt on the personal loan

 

[NickGrogan]

Fair enough, most of my mortgage experience was back in 90's and I don't know anyone who didn't lie.

 

[Mark T Jones]

Fair enough, most of my mortgage experience was back in 90's and I don't know anyone who didn't lie.

Lie to buy

 

[Talay]

I've done it before. In fact, I believe you can get a refund of any interest paid through your personal tax return, if it was for investment in your business.

Ask your accountant.